Economy
From The Report: Indonesia 2012
View in Online Reader

Already the world’s 17th-largest economy with a nominal GDP of $768bn in 2010, Indonesia is one of the three fastest-growing economies in Asia. Authorities are working to use the country’s key competitive advantages to attract the long-term investment needed to realise their goal of becoming one of the top 10 economies by 2025. Growth was forecast to reach 6.3-6.5% for 2011. However, addressing infrastructure will be a major challenge for the government, which has struggled for several years to come up with a clear plan for public-private partnership (PPP) projects for transport. The administration of Susilo Bambang Yudhoyono has pledged increased spending, but projects have been delayed due to issues such as land acquisition, and are just now moving towards tenders. Overall, growth is expected for both the short and long term, but more investments will be necessary to keep up with the booming ASEAN region.

This chapter features interviews with Hatta Rajasa, Coordinating Minister of Economy; Agus Martowardojo, Minister of Finance; Prijono Sugiarto, President Director, Astra International; Gita Wirjawan, Minister of Trade and Chairman, Investment Coordinating Board; Bobby Umar, President Director, Bakrie & Brothers; and a viewpoint from Maxime Verhagen, Deputy Prime Minister and Minister of Economic Affairs of the Netherlands.

Articles from this Chapter

Overview

At the centre of attention: Growth continues driven by private consumption and investment
OBG
plus

In the midst of turbulent international economic conditions, Indonesia’s growth and investment potential is increasingly attractive. Authorities seek to leverage on the economy’s key competitive advantages to attract the long-term investment needed to realise their goal of turning the country into one of the top 10 economies by 2025. Already the world’s 17th largest with a nominal GDP of Rp6400trn ($768bn) in 2010, Indonesia’s economy is one of the three fastest-growing in Asia. A…

Interview

Hatta Rajasa, Coordinating Minister of Economy: Interview
OBG
plus

Interview:Hatta Rajasa Which key reform measures will remove administrative hurdles and encourage private investment? HATTA RAJASA: Our primary focus has been to address issues related to land and land acquisition. With this in mind, we have revised policies that deal with private participation in infrastructure development by clarifying the issues of unsolicited projects, provision procedures and the government’s role in land provision. We have also implemented three initiatives to support…

Interview

Agus Martowardojo, Minister of Finance: Interview
OBG
plus

Interview:Agus Martowardojo How strong is the correlation between Indonesia’s economic fundamentals and investment capital? AGUS MARTOWARDOJO: The Indonesian economy is stronger than ever. Economic growth is primarily supported by an improvement in domestic consumption and solid rise in exports, which has lead to an increase of investment. The government supports fiscal health by maintaining a budget deficit at a level below 2% of GDP, while boosting tax collections by increasing tax potential…

Analysis

On again, off again: The central bank responds to challenging inflationary conditions
OBG
plus

In an uncertain global economic environment, emerging markets like Indonesia have faced volatile inflationary pressures. While local monetary authorities have had to quickly adapt to a shifting balance between inflation and economic growth, the government continues to keep the prices of necessities down through a mix of price controls and imports. While inflation re-emerged as a key downside risk in early 2011, it cooled markedly as the year drew on. Despite favouring cyclically exposed economies…

Analysis

Investors welcome: Concerted efforts to enhance regulations and incentives
OBG
plus

Although the country has already made strides to improve its investment climate, further bureaucratic reforms meant to streamline procedures and encourage private investment are central to Indonesia’s ambitions over the next 15 years. After years of centralised rule under Suharto, the initial “big bang” of decentralisation in 2001 wrought its own set of challenges stemming from at times overlapping federal, provincial and district levels of governance. The number of kabupaten(districts)…

Interview

Gita Wirjawan, Minister of Trade and Chairman, Investment Coordinating Board (BKPM): Interview
OBG
plus

Interview:Gita Wirjawan What progress has been made in attracting investment in the regions and in added-value industries? GITA WIRJAWAN: We are seeing investment flourish as our strategy to shift Indonesia from a resource-based economy to a value-added one has begun to bear fruit. As a reflection of this strategy, foreign direct investment (FDI) destined to value-added industries has reached its highest ever level. In 2010 FDI was close to $17bn, and of that only $2.2bn was in the mining…

Analysis

Portfolio prospects: Strong fundamentals support a positive outlook for markets
OBG
plus

Despite a history of balance-of-payments crises caused by rapid swings in Indonesia’s current account balance, portfolio investors have by and large returned with confidence to the country’s capital markets since the recovery from the 2008 crisis – and this despite short-term corrections such as those during the summer of 2011. Although still volatile due to their limited depth, Indonesia’s bourses seem to have once again become a darling of investors. Portfolio investment grew by a significant…

Analysis

Defending a stable rate: The central bank steps in to avoid rapid currency fluctuations
OBG
plus

While government spending has not been a key driver of growth thus far, monetary policy has remained the key instrument of macro-economic management. Affected by balance-of-payments crises exacerbated by currency volatility, the central bank has maintained a watchful eye on the rupiah, which rose 14.4% against the dollar in 2010 and stands as the fastest-rising currency after the Singapore dollar in 2011. The international carry trade from low-interest-yielding economies towards high-yielding…

Analysis

Prime target: Foreign investors return to the market
OBG
plus

Sources of long-term capital, particularly needed for large-scale projects in infrastructure, remain more elusive in Indonesia than in neighbouring economies. The contribution of pension funds and insurance companies has remained limited, yet the size of the mutual fund industry has grown significantly. Interest will likely grow further when Indonesia attains an investment-grade rating in 2012. The country has, however, returned as a prime target for foreign direct investment (FDI). The central…

Analysis

A driving force: Private consumption boosts economic growth
OBG
plus

Strong domestic spending has proved a key advantage for Indonesia, with its 240m consumers helping to insulate it from global economic tailwinds. Private consumption has risen sharply above pre-1997 levels, becoming a key driver of Indonesian economic growth – aggregate domestic consumption now accounts for around 70% of GDP, similar to the structure of a postindustrial economy. The Japanese bank Nomura Capital estimates that the Indonesian middle class (with disposable household income in…

Interview

Bobby Umar, President Director, Bakrie & Brothers: Interview
OBG
plus

Interview:Bobby Umar Why have public-private partnerships (PPPs) in infrastructure projects been relatively minimal? BOBBY UMAR: Before the 1998 crisis, infrastructure, including electricity, was a government priority, and its support and development of major projects helped the Indonesian economy to grow some 8-10% per year. However, since then, the country has yet to be able to attain the same level of success. The current administration is working hard to improve the regulations and facilitate…

Viewpoint

Maxime Verhagen, Deputy Prime Minister and Minister of Economic Affairs of the Netherlands, on shared development projects
OBG
plus

The Netherlands and Indonesia enjoy strong ties that span the realms of culture, politics and the economy. Numerous Dutch companies, ranging from small and medium-sized enterprises to global players, are active in Indonesia. Indeed, many Indonesians have grown up with Dutch brands in industries ranging from consumer goods and manufacturing to financial services and trade. In fact, the Netherlands is among the five largest investors in the country, creating value for consumers and jobs for families.…